If you’re a baby boomer, you’re either approaching retirement or already retired. The primary source of your wealth is likely your 401(k) retirement plan, which is often the least understood of all your assets.
It’s time to examine closely your 401(k) retirement plan.
Should you review your retirement plan investment fund allocations during a market correction?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Yes — please do. Don’t be scared, it’s all right.
The downward move in global stocks has been driven by a sell-off in the most risky asset classes such as commodities and currencies, with China in the middle. A word of caution: dabbling in these types of securities is not a wise choice for hard-earned retirement funds, so please — leave these volatile and potentially treacherous markets to the fast-moving traders!
Over time, a well-diversified portfolio is a consistent and reliable method of growing wealth through a wide range of economic conditions. By definition, retirement plans have a long-term investment horizon and are typically diversified within the two major asset classes: stocks and bonds. Choosing the right mix of stocks (equities) and bonds (fixed-income) can be one of the most basic, yet confusing decisions facing any investor. Historically, the role of stocks is to provide long-term growth, and the role of bonds is to provide an income stream, although that’s currently a challenge in this low-interest-rate environment.
By definition, equities carry more risk, as they have more moving parts than traditional fixed-income securities. Over long periods of time, however, equities have outperformed fixed-income and have proven to both grow and preserve the purchasing power of account values. As such, equities are emphasized in retirement funds, particularly the further you are away from the event.
Do you have the optimal mix of investment funds that are specifically suited to your lifecycle stage?
As for your 401(k) plan, you need the answers to these three questions:
1. Asset Allocation: What percentages of your assets are in equities and fixed-income?
2. Fixed Income: What is the description of each of your fixed-income funds? Interest rates are expected to start rising soon, and this is the time to diversify your holdings and add to strategies that are better designed for such a cycle. Remember, it’s an “inverse relationship": bond prices go down when interest rates go up.
3. Equities: What styles and sectors, such as large vs. small company, international vs. domestic are you emphasizing? Does the majority of your allocation reflect the drivers of global economic growth? Are you overly exposed to gyrating currencies, commodities?
Ask for help. Reach out to the investment advisory team that supports your company’s 401(k) plan. Find your retirement plan website log-in or make a phone call. The information is at your fingertips. And, for those that want to delve deeper, here are some additional questions:
Do the majority of your fund choices have above-average 10-year track records?
Have you chosen low-expense-ratio funds for index oriented allocations?
Have you chosen funds with long manager tenure in the more actively managed funds?
Examine the top 10 stock holdings in the equity funds— you will recognize some of the company names.
The answers can be found in the fund fact sheets which should be available from your plan advisor.
Recent regulatory initiatives have elevated the importance of the adviser’s dedication to plan participant education. In fact, employer retirement plans are subject to some of the strictest laws and regulations in the financial services industry. For example, the U.S. Department of Labor (DOL) requires that plan sponsors review their service providers every three years. In recent years, regulatory changes such as the DOL’s service provider fee-disclosure requirements are elevating the importance of these reviews.
At the same time, the DOL has expressed concern about potential conflicts of interest that may arise when advisers who are not fiduciaries provide investment support to qualified retirement plans. Stay tuned for potential changes on that front.
It’s not enough to just make your initial investment decisions, no matter how prudent, and then just assume or hope for the best. Investing is as fluid as the changing world economies. Investment management is as much an art as a science — human input and informed market judgment play an important, ongoing role.
Time to open that envelope (or, log-in to the website) and check your retirement account!
Peck Wealth Management, LLC is a Registered Investment Advisor and manages investments for wealthy families, foundations, trusts and retirement plans. We focus on lifelong investing and we care about our Clients as individuals. This communication is solely for illustrative purposes and is not a recommendation to buy or sell any securities.
-
April RMD? Five Tax Strategies to Manage Your 2025 IncomeTaxable Income The April 1, 2025, deadline for required minimum distributions (RMDs) is fast approaching for retirees who turned 73 in 2024.
-
Rising AI Demand Stokes Undersea InvestmentsThe Kiplinger Letter As demand soars for AI, there’s a need to transport huge amounts of data across oceans. Tech giants have big plans for new submarine cables, including the longest ever.
-
The Three Biggest Fears Keeping Retirees Up at NightHere are the steps you can take to put those fears to rest and retire with confidence so you can relax and enjoy the life you've planned.
-
What Can a Donor-Advised Fund Do for You? (A Lot)DAFs and private foundations go about helping charities (and those who donate) in different ways. Each comes with its own benefits and restrictions to navigate.
-
Estate Planning When You Have International AssetsEstate planning gets tricky when you have assets and/or beneficiaries outside the U.S. To avoid costly inheritance mistakes, it pays to understand the basics.
-
Three Essential Estate Planning Steps to Protect Your Nest EggAfter dedicating years to building your wealth and securing your future, make sure your assets are protected and your loved ones are provided for in the future.
-
Is Chasing the American Dream Ruining Your Financial Life?Too many people focus on visible affluence as a marker of success. Here's how to avoid succumbing to the pressure and driving yourself into debt.
-
Retiring With a Pension? Four Things to KnowThe road to a secure retirement is slightly more intricate for people with pensions. Here are four key issues to consider to make the most out of yours.
-
Revocable Living Trusts: The Good, the Bad and the UglyPeople are conditioned to believe they should avoid probate at all costs, but when compared with living trusts, probate could be a smart choice for some folks.
-
How to Plan for Retirement When Your Child Has Special NeedsWhen your child has special needs, your retirement plan should include a plan for when you'll no longer be able to care for them yourself. A five-step guide.
